Some in Harrisburg chafe under Pa. senate threat

Reuters News
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Posted: Jun 28, 2011 11:38 PM
Some in Harrisburg chafe under Pa. senate threat

By Edith Honan

HARRISBURG (Reuters) - Residents of Pennsylvania's capital packed a public hearing on Tuesday, saying bankruptcy should remain an option for the debt-laden city and any plan should require greater sacrifice from the surrounding county and from bond holders.

Harrisburg, a city of 50,000 about 100 miles west of Philadelphia, is scrambling under about $300 million of debt associated with its incinerator, along with rising costs and sluggish revenue.

"Where is it written that bond holders should not see any risk?" Bill Gantt, 52, an interior decorator, told the hearing to laud applause. "We're ready to destroy the city in order to see that they have no risk."

The hearing was organized by the Novak Consulting Group, a state-appointed group that presented a rescue plan this month. The plan recommended against bankruptcy, and called upon the city instead to sell the incinerator, renegotiate labor deals, cut jobs, and sell other assets.

The Harrisburg City Council has until July 23 to adopt the rescue plan, and some of its members have already voiced reservations about it. The council has requested Mayor Linda Thompson prepare for bankruptcy as a last resort.

A bankruptcy filing could carry a stigma that might freeze Harrisburg out of the municipal debt market and rattle the $2.9 trillion U.S. municipal bond market.

Julia Novak, who ran the meeting, said her consulting group had decided against bankruptcy after a consensual agreement was made with bond holders. She added that her plan would limit tax increases and resolve most of the city's debt.

But bankruptcy, or the threat of bankruptcy, could also force greater concessions from parties other than the city -- something many people at Tuesday's public hearing said they welcomed.

LACK OF TRUST

Carl Choper, a Harrisburg rabbi who spoke at the meeting, said the popularity of the bankruptcy option among Harrisburg residents indicates "how much people don't trust" the local government and other stakeholders.

"It would be really nice if someone who didn't have a vested interest would take a look," he said.

City Councilman Brad Koplinski said as long as Harrisburg is "teetering" on the brink of financial ruin, bankruptcy should remain "the option of last resort."

The state has indicated it might force Harrisburg's hand. Earlier on Tuesday, the state senate approved legislation to create a management board that would take control of the city if the Harrisburg City Council declines to accept the state's recommendations.

The bill has not yet come before the state's lower house.

"We've watched and waited for the city of Harrisburg to act responsibly for over a year. Instead, they have thumbed their noses at the Act 47 program and process," State Senator Jeffrey Piccola, a sponsor of the takeover bill, said in a statement.

Last December, with Harrisburg facing the prospect of bond defaults, deep service cuts, or worse, Pennsylvania officials put the city under its so-called Act 47 law, which obliges faltering cities to implement plans to ward off Chapter 9 bankruptcy filings.

At the root of Harrisburg's troubles is a complicated financing scheme used to fund a state-of-the-art revamp of its trash-burning plant that left the city with piles of debt.

The incinerator is owned by the Harrisburg Authority, a separate municipal entity, but the city and the surrounding Dauphin County guarantee much of that debt.

The problems date back to 2003, when the authority embarked on an ambitious project to transform its polluting, 1969-vintage incinerator into a clean-burning waste-to-energy plant that also harvested ferrous metals, generating much-needed revenues.

But cost overruns and lower-than-expected revenues left the city scrambling to service the complex web of bonds and interest-rate swaps related to the facility.

Harrisburg is not the first Pennsylvania city to need an Act 47 rescue plan. Both Philadelphia and Pittsburgh have gone through the process, as have smaller cities such as Scranton and Reading.

Novak said it takes an average of 11 years for a city to go through the Act 47 turnaround process.

(Reporting by Edith Honan; Editing by Jerry Norton)